Having a mortgage application rejected can be devastating, particularly if you have already found the home you want to buy. But a rejection does not necessarily mean you cannot get a mortgage at all, with lenders turning borrowers down for a wide variety of reasons, ranging from affordability and credit history to problems with the property itself.
Understanding the reason for rejection
Emma Jones, managing director of Runcorn-based WhenTheBankSaysNo.co.uk, said understanding exactly why an application has failed was important before deciding what to do next.
She said: "There isn't one single reason why banks say no to a mortgage application. You can have a perfectly good income and credit history and still be declined because of the property you're buying, while another borrower might have a suitable property but fail the lender's affordability or underwriting checks.
"The important thing is understanding why you've been declined rather than panicking and immediately making applications elsewhere."
Property valuation issues
One common problem can emerge when the lender values the property. Emma said: "A surveyor may decide the property simply isn't worth what you've agreed to pay. That matters because the lender is deciding how much it's prepared to lend against the property's value, not just looking at the price you've agreed with the seller.
"The valuation can also uncover serious problems such as damp, asbestos, Japanese knotweed, cladding or structural defects. These can be expensive to put right and some lenders may decide the property falls outside their criteria altogether.
"Non-standard construction can cause difficulties too. Properties with features such as thatched roofs, steel or timber frames, single-brick construction or some high-rise buildings may require a lender comfortable with that particular type of property."
Affordability and underwriting checks
Borrowers can also be rejected because a lender decides they cannot comfortably afford the mortgage. Emma added: "Income is obviously important, but lenders don't look at your salary in isolation. They'll consider how much you want to borrow alongside your expenditure, debts and overall financial circumstances.
"You might have sufficient income on paper, but significant monthly commitments or a high debt-to-income ratio. There can also be situations where a lender won't take all of somebody's income into account, which can reduce how much they're prepared to lend."
Even borrowers who initially appear suitable can run into difficulties once their application reaches an underwriter. Emma said: "Underwriting is where the lender looks much more closely at the application. Affordability, credit history, fraud and money-laundering checks, inconsistencies in the information provided or a change in someone's finances can all potentially result in a decline. That's why two apparently similar borrowers can get very different outcomes."
Agreement in principle is not a guarantee
Perhaps most surprising is that getting an agreement in principle does not guarantee the eventual mortgage. Emma added: "An agreement in principle is encouraging, but it isn't a mortgage offer. Further checks still have to take place and circumstances can change. A new credit problem, changing jobs, increasing your borrowing or expenditure, or discrepancies emerging during the full application can all create problems.
"A mortgage can potentially be declined right up until completion, so don't assume you're home and dry just because you've passed the first stage. Keep managing your finances carefully and avoid taking on unnecessary new debt while the purchase is going through."
For borrowers who are rejected, Emma said the priority should be establishing the cause rather than simply trying another bank. She added: "A no from one lender isn't automatically a no from the entire mortgage market. Different lenders have different appetites and criteria. But you need to understand the problem first. Otherwise, you risk applying again without addressing the reason you were rejected in the first place."
